Payout vs. outright sale formula?

Hi. I have leased to Continental the mineral rights in 19-3N-4W in Garvin County. There are two wells, producing oil and gas for about four years. Continental is now offering to buy me out, at $21K per acre. They said they want to resell in a bundle to other investors. I know that the wells are likely to start producing much less within the next year or so. How can I tell if this is a good offer? Is there any formula for payout over time vs. selling outright? Thanks in advance for the help.

Hi Kate,

I recently had a similar situation with Continental. I don't know of any formula that could give you that info (although companies like CLR must have something like it!) I would recommend that you find someone independent who really knows the area, history of production, and the current markets in sales and leasing, and hire them to study this for you. They can make some ball-park projections about future production that may be helpful. I found someone through an oil and gas attorney in OK City. Best of luck!

In 16 3n,4w they are drilling several wells...I believe at least 7 and some of those well are going also into 9 3n4w and some to be drilled in section 10. Our friends own in these sections.

Kate, what makes you think there will always be just two wells? That offer tells me they are planning on more wells and are making moves to acquire your acreage and others on the cheap. If you want to go ahead and cash out that depends on your current and future financial needs but personally I wouldn't except less than $30,000/acre. They wouldn't be making the offer unless they foresee a substantial profit.

That is not a good offer.

Continental just filed for increased density in section 21 for three additional wells and the reserves indicate room for three more wells after those. So like Michael says, you either need to ask for a WHOLE lot more or just hang in there until your additional wells are drilled-hopefully in the near future. No OCC listings for your section at the moment, but CLR only has so many crews and rigs to work with.

The other companies in the area have increased density cases in about 11 other sections in the township. The section to the west of you has eight wells. Gives you an idea of the trend in the area.

If you do decide to sell, look into a IRS 1031 Exchange which could greatly minimize or eliminate your Federal Income Tax. We sold our MR and purchased six income producing properties. NOTE: The 1031 Exchange program MUST be setup PRIOR to Closing on the MR.